Privacy is critical to mass adoption of Open Finance
How Oasis Labs and the Oasis network can help expand adoption of DeFi and Open Finance
Open Finance applications are primed to reinvent the financial system — pushing it towards a design that relies less on status, wealth, and geography and more on a set of programmable conditions that have the benefit of removing the subjectivity and bias that cause high costs, risks, and inefficiencies.
Note: given that Decentralized Finance (DeFi) is a generic term that signals a series of products that are meant to be accessible to everyone, the term Open Finance seems to better serve the mission.
In the last year alone, we witnessed how the first generation of Open Finance has provided the market with a huge number of protocols and primitives that are meant to support specific pieces of this new financial system: the ~$500 M currently locked in Open Finance, up from $1,400 in September ’17 (source), is a material signal that Open Finance is growing in attention and adoption.
But in order to truly overtake traditional financial systems, Open Finance needs to take significant steps to improve how it addresses privacy, scalability, composability, and identity. At Oasis Labs, we believe our platform has the unique characteristics required to solve these issues.
Over the past 3 months we’ve talked to 35+ companies in the Open Finance space, and the consistent feedback we’ve received is that the need for privacy and confidentiality is imminent and there is no viable platform out there at the moment, but a solution has yet to be developed to address this need. It’s fairly easy for example to expect consumers to demand that their banking transactions will be kept private, their wealth hidden from unauthorized parties, and their identity only available for specific calculations.
Compared to the traditional system, Open Finance is based on the idea that parameters (such as interest rates) are rebalanced in real time as a function of the new data (such as supply and demand): the ability to collect inputs from multiple sources, secretly compute over them, and release the output of the computation only will soon have terrific impact in segments such as decentralized exchanges, lending, trading, payments, scoring, and collateralization.
A few examples of how the Oasis Labs privacy-preserving development platform could be useful:
- In Collateralized Lending, privacy can be an enabler: the privacy-preserving version of a Collateralized Debt Position (CDP) can keep transactions private from whoever is not involved in the transaction, protecting the information around the actual participation of a company or individual in a system, and preventing manipulation such as front-running.
- In Dark Pools, privacy can be a game-changer: money managers can protect their trades from the orderbook, hence preventing the competition from copying the strategy or the trade price to move as a result of the incoming signal.
- For Stablecoins, privacy can solve the traceability-fungibility problem: a private stablecoin would enable businesses to protect their interests and relationships, which is key to large-scale business adoption.
- Confidentiality of computation will protect developers from compliance issues: with more power moving from legal agreements to lines of code, the execution of programs within a secure and private environment will protect developers against potential compliance problems because of the guarantee that the data is exposed only to whoever is granted access to it.
Despite some attempts, the current Open Finance environment is bounded by the performance of Ethereum, which compares really poorly to the traditional financial system (Ethereum currently supports ~15 transactions per second compared to, say, the 2,000 processed by Visa).
In a space where thousands of transactions are submitted each second for the reasons mentioned above we believe that Open Finance has an opportunity to do better than the ‘pending transaction’ of some current systems. Oasis Labs’ unique architecture improves scalability from both a throughput and complexity standpoint, allowing Open Finance applications to privately (if needed) compute complex transactions in real time.
Composability is at the center of Open Finance applications: thanks to the integrations on our Open Finance development platform, developers will easily be able to create applications that combine multiple protocols that work together as pieces of a puzzle.
An example could be a decentralized version of Wealthfront (the all-in-one solution that helps you earn more interest on your cash, get advice on how to manage your savings and automate your investments) that allows users to submit USDs, convert them into crypto, earn interest through Compound and DyDx, convert back to USDs and transfer principal+interest back to the main bank account.
Another important aspect of composability is the ability of moving liquidity across multiple protocols: borrowing a collateral on one platform, use the liquidity to open an interest-generating position somewhere else, move the position to the protocol who pays the highest interest rate, managing the entire process from a user-friendly interface that allows users to perhaps deposit fiat, convert it automatically into crypto and cash out back to fiat when done.
Oasis Labs wants to make this process as easy as possible for developers: our Open Finance platform will allow full portability of Ethereum-based applications. Additionally, we are partnering with the main protocols, primitives, and services to integrate existing capabilities in our development environment.
Identity & Reputation
The lack of an identity system that ensures completeness of the user’s financial history in addition to KYC and the high volatility of the market are the reasons behind the high over-collateralization of assets required by the Collateralized Lending protocols, which creates a high barrier for mainstream adoption.
A reputation system that is immune to Sybil attack needs identity to be tie in and hence processes involved need to be run privately and securely.
Despite the fact that we agree that proof of attestation is the first necessary step, our beliefs rotates around proceeding step-by-step on a path that leads to a reputation system: in our view, the attestation should be shared across 3rd parties to then verify how good the external verification is; this will allow the production of a metascore which will then be used to form a reputation system.
Just like every other building block, Identity needs to evolve to become decentralized and programmable: decentralized, as in user’s identity is curated via multiple sources and comes together to serve the user without compromising privacy.
Programmable in the sense that both users’ and developers can interact with identity just like they do for other software services.
Once Decentralization and Programmability are achieved, we would be able to create stronger identity systems that can provide reputation for individual users, that is impossible to achieve with current systems.
Given the fundamental role of privacy in the creation of a strong identity and reputation system, we are actively researching into how to augment existing solutions or to produce our own one.
It’s with a lot of excitement that Oasis Labs is approaching the next few months. From integrating multiple protocols to working with the main Open Finance dApps, we will be working to create the best possible development environment to enable developers to bring Open Finance closer and closer to mainstream adoption.
Work with us!
We are partnering with the main Wallets, Protocols, and other services to build the most comprehensive platform for Open Finance. If you are interested in making yours available or to leverage our platform to build your DApp please reach out to Luca at firstname.lastname@example.org.
New to Open Finance? Some resources you may find useful
- DeFi stats: https://defipulse.com/
- What is a CDP? https://defipulse.com/blog/what-is-a-cdp/
- DeFi vs FinTech: https://tokeneconomy.co/defi-vs-fintech-d152bae2585c
- DeFi prime: https://defiprime.com/
- DeFi: What it Is and Isn’t: https://medium.com/coinmonks/defi-what-it-is-and-isnt-part-1-f7d7e7afee16